TORONTO (Reuters) - Investors looking at Element Financial EFN.TO and its 175-percent stock surge in just over two years could think they’ve missed the boat, but Chief Executive Officer Steven Hudson insists the upstart Canadian equipment financing company has plenty of upside.
Element, positioned to exploit a sector largely abandoned by big banks in the wake of the financial crisis, will seek acquisitions in the United States and Europe, could eventually issue a dividend, and plans rapid asset and receivable growth from its C$3.3 billion ($3.02 billion) at the end of 2013.
“If you look to the end of 24 months (from now), we think the company is fully built with approximated C$9 to C$11 billion of assets,” Hudson told Reuters in an interview on Wednesday.
“In the vendor finance market that’ll make you in the top 3 and that’s where we want to play.”
Shares of Element, which provides financing to companies that buy cars and truck fleets, helicopters, rail-cars and other equipment, closed at C$13.77 on Wednesday, up nearly three-fold from where they debuted on the Toronto Stock Exchange in December 2011.
Over the past two years, the company has become a darling of analysts, with eight of eight surveyed rating the stock a “buy” according to Thomson Reuters I/B/E/S.
“We believe the shares are attractively valued with potential acquisitions likely to add further valuation upside,” RBC analyst Geoffrey Kwan said in a note on Monday.
The company represents a second act in the equipment finance business for Hudson. He built Newcourt Credit Group, one of the world’s largest non-bank lenders in the 1990s, only to see it hit hard after the 1998 Russian debt crisis prompted its short-term financing strategy to dry up.
The company’s value plunged and it was bought by CIT Group CIT.N in 1999, while Hudson left the company.
After about a decade outside the sector, during which he served as chief executive officer for hair restoration company Hair Club for Men, Hudson jumped back in with Element as he saw the equipment finance industry largely abandoned by larger players as they downsized following the financial crisis.
“You’re seeing significant demand for new equipment as the North American economy re-equips itself,” he said.
This time around, Hudson says he is taking a more conservative approach, although the company has been anything but quiet, announcing several deals including an alliance with Trinity Industries TRN.N to provide lease financing for up to US$2 billion worth of railcars over the next two years.
Hudson said he has his eye on building the company’s scale in the United States, mentioning the auto fleet leasing business of U.S. company PHH Corp PHH.N as a potential acquisition target.
He also has interest in expanding the helicopter leasing business to the North Sea oil field, and envisions launching a dividend, though likely not for another two years, when he expects the company’s torrid growth to ease.
“When we do it we’d like to implement a meaningful dividend. Not a 1 or 2 percent yield, but a 3-5 percent yield,” he said.
“But in the short term over the next 2 years our growth is so significant it’s better for our shareholders that we reinvest the capital into the businesses.”
($1 = 1.0939 Canadian dollars)
Reporting by Cameron French.; Editing by Andrew Hay